View graph and breakdowns of how high oil prices are effecting African economies: A comparative study of debt relief and spending on oil and human services in non-petroleum producing countries in Africa that receive assistance under the Heavily Indebted Poor Countries Initiative—the countries hit hardest by high world oil prices.
Methodology
With world crude oil prices nearing $75 a barrel, economies across Africa are grinding to a halt under the burden of soaring energy costs. The spike in world oil prices this summer will exacerbate economic problems, pounding already fragile national budgets and offsetting hard-fought gains from poverty reduction programs, international development aid, and debt relief efforts.
High oil prices slam the door on prospects for economic development in poor countries. The poorest of the poor will not feel the immediate effects this summer—the 747 million Africans who still use firewood and dung to cook their meals, don’t have access to electricity, don’t take shared taxis to market, and don’t have motorcycles to fill up with gas. But the urban poor and working classes who are just high enough up the economic ladder to marginally benefit from basic modern services and transportation will be bitterly squeezed by rising oil prices.
Africa’s hardworking urban poor are almost always creatively productive as they strive to better their lives and those of their families. Countries across the continent pin their hopes on the upward mobility of the urban poor—a hope shared around the globe, in fact, for a more secure and equitable world tomorrow. Alas, those African countries not afflicted by the “curse of oil,” such as Nigeria, Gabon, Sudan, Algeria and Libya, are plagued by the cost of rising global oil prices (See table, below, which compares debt savings to the cost of oil and health expenditure as percent GDP in select African countries.)
This summer brings another season of skyrocketing oil prices, which means already struggling economies in Africa may well shut down under additional cost burdens. As long as clean energy alternatives are absent in these countries, hard-won achievements in economic development will continue to fall prey to oil prices. Africa has plenty of opportunities to exploit renewable energy resources such as wind, solar, and geothermal power. And renewable biofuels production is equally promising.
The United States must take the lead on making clean energy in Africa a priority for the international community and work with developing countries to help them leapfrog the oil dependence that holds advanced industrial economies hostage today. The 21st century will indisputably be characterized by global interdependence, shared risks, and shared benefits. There are millions of people in Africa with stunted economic horizons, without functioning school systems and hospitals, and frustrated by their governments spending money on oil instead of basic human services—problems that pose a threat to the interests of global security, the magnitude of which the United States and its allies have only just begun to appreciate.
The growing crisis
In Senegal’s capital city of Dakar, the cost of taxis has almost doubled since 2005 and blackouts occurred every day last summer because the state-owned utilities couldn’t afford to pay for fuel. The country relies on oil imports to power its diesel-fired generators, and while conditions relaxed somewhat over the winter, power cuts are on the rise again. As of May, the capital was facing 10-hour power cuts several times a week and the government was warning of impending, unprecedented shortages.
Senegal is paying nearly twice what it was a few years ago to import the same amount of oil. The increased cost alone is more than seven times as much as the country is gaining through multilateral debt relief programs. The government has responded to the energy crisis by providing direct subsidies to consumers. Since the rise in world oil prices began in 2002, these subsidies have increased five-fold, creating yet another incredible burden on the national budget.
Muslim Senegal is one of West Africa’s most stable democracies, and until recently had been considered one of the few countries where the Millennium Development Goals—a set of goals such as achieving universal primary education, which were adopted by the world’s governments as a roadmap for reducing poverty—could have been achieved by the 2015 target date. But those prospects are looking increasingly grim these days. Even excluding domestic support mechanisms, Senegal spends about the same amount on health and education combined as it does importing oil, roughly 8.5 percent of its gross domestic product.
Similar trends are occurring elsewhere in Africa, where scarce budgetary resources, desperately needed in the health and education sectors, are being spent to cushion oil and electricity costs. Indeed, Senegal’s West African neighbors are even worse off.
Guinea, Guinea Bissau, and the Gambia—all of which, like Senegal, are dependent on imports for 100 percent of the oil that they consume—spend a fraction of the amount of their oil bills on public services and poverty reduction expenditures. The gains of debt relief accumulated over the last decade are fast being wiped out, and annual debt savings today are grossly overshadowed by the unprecedented drain on their budgets due to record oil prices.
The problem goes beyond West Africa. Take Uganda in the great lakes region of East Africa, one of the poorest countries in the world. Years of steady economic growth and a population explosion—Uganda has the highest population growth rate in Africa—have combined to create an energy crisis when not long ago the country was exporting its surplus electricity to neighbors.
Uganda has been plagued by increasingly frequent and severe power outages from its hydroelectric stations on the upper tributaries of the Nile River flowing in and out of Lake Victoria. Due in part to global warming, the water levels of Lake Victoria, the largest of Africa’s great lakes, have been decreasing steadily over the last decade.
With regional droughts, water levels dropped an astonishing half an inch per day in most of 2006. Uganda’s use of clean, renewable hydroelectric energy has served well to diversify the country’s fuel-mix and shield the economy from volatile world oil markets, but river flow and water levels are so low today that the dams are generating power at one-third of capacity.
Last fall, Uganda experienced one of the worst power shortages in its history. The government resorted to an extreme load-shedding regimen, providing power only every other day. Responding to the emergency with the support of the World Bank, it installed two diesel-fired generators to relieve the shortage—a less-than-perfect solution for numerous reasons. The generators are energy-intensive. They emit high concentrations of greenhouse gases. They require that oil be imported (modest oil reserves were recently discovered in western Uganda, but are not online). And, not least, they produce power at significantly higher cost than the hydroelectric generators.
The bill for importing the fuel to power these plants amounts to roughly $150 million per year, a cost the government subsidizes and then rolls off to consumers, who in turn have seen their electricity bills double in the last year. To keep this in perspective, the average Ugandan makes around $280 per year, but pays $5.50 per gallon at the pump and an average 24 cents per kilowatt hour for electricity, as compared to eight cents per kWh in the United States.
In the meantime, these two generators have led to a rapid escalation in the demand for diesel, causing widespread fuel shortages across Uganda’s capital city of Kampala. When they are delivered, diesel supplies at Kampala fueling stations last less than 24 hours before selling out. Now, when the national power grid cuts the power supply, which still happens for extended periods at a time, businesses that had come to rely on their own back-up generators can’t find the diesel to run them.
From small enterprises to manufacturing factories, business across the country have been forced to lay off workers and shut down operations. The government has approximated that power shortages last year cost the economy $250 million, but that is likely a low-ball figure. This year the situation could be just as bad if not worse. Diesel shortages are still wide-spread and black-outs are leaving the capital dark for up to 30 hours at a time.
East Africa may be less dependent on oil than other parts of the continent due to its considerable hydropower capacity, but even that buffer is fast eroding. Across Lake Victoria from Uganda, Tanzania is another country that suffered a similar fate in 2006, its worst power failure in decades.
Tanzania’s commercial fuel-mix is relatively diversified, and the country generates more hydroelectricity than any other country in the region. Yet severe drought last year caused such a reduction in electricity supplies that the country was forced to revise its 2006 GDP estimate down to 5.8 percent from 7.3 percent. This year, the posted estimate is back up to 7.3, but we’ll see how that number holds up after another summer season of high oil prices and drought—it may well prove to be overly optimistic once again.
Most global warming models agree that increasingly frequent and prolonged droughts are in East Africa’s near future, which means that the problems these countries have faced in recent years are only going to worsen. Regrettably, dirty, destabilizing oil will be the quick fix unless other alternatives are developed now.
The World Bank estimates that poverty has increased as much as 6 percent in some parts of the world due to the hike in oil prices in recent years. Especially vulnerable are the debt-burdened countries, particularly in Africa, which rely on oil imports to fuel their economy. The poorest countries in the world consume an almost negligible share of the millions of barrels of oil consumed every day globally, yet they are hit the most by rising world oil prices—and then hit again by the effects of climate change associated with burning hydrocarbons.
This isn’t a problem that can be solved by any single line of attack, but one thing is clear: until countries develop the tools to diversify their energy supplies away from conventional fossil fuels, the destabilizing effect of high oil prices will continue to undermine development efforts.
The growing opportunities
Rather than treating the symptoms of poverty, as development assistance too often does, investing in a clean energy future for poor countries gets at the roots of the development challenge. Renewable energy solutions can promote long-term economic growth and a built-in capacity for self-reliance.
The opportunities for Africa to emerge as a rising star in the growing renewable energy markets are enormous. A larger land mass than China, India, Western Europe, and the United States together, with thousands of miles of coastline and only 14 percent of the global population, Africa has vast, latent potential for wind and solar power generation. Recent studies show strong potential for wind power generation, not only in coastal South Africa, Morocco, and Madagascar, but also in Kenya and Ethiopia. In-depth evaluations are still pending for countries such as Namibia and Angola, where offshore wind currents are expected to be highly suitable for wind farming.
Or consider Kenya, which has already begun positioning itself to become a regional leader in photovoltaic cell assembly. With the introduction of lower-cost PV cells from China, the market price is due to drop dramatically over the coming decade, making wide-scale PV application much more feasible.
Along the Rift Valley fault that runs north to south through East Africa, geothermal activity could produce an estimated 9,000 megawatts of electricity using technology that could be deployed today—that’s more than is currently produced globally—and could dramatically change the lives of hundreds of thousands of people in Ethiopia, Kenya, Uganda, Djibouti, Eritrea, and other African countries with substantial geothermal assets.
Biofuel is another sector where the continent could rival major global producers and play a central role in meeting the soaring demand for ethanol in Europe, United States, and China. Africa’s arable lands are well-suited to a range of energy crops, especially in the tropical climate zones around the equator that enjoy optimal rains and a long growing season. Conventional feedstock crops like sugarcane, maize, and soy, as well as new oilseed crops, are already being grown and converted into biofuels.
Jatropha, for example, has attracted a fair amount of attention in recent years. A hardy bush thought to be appropriate for cultivation in Africa, Jatropha thrives in arid areas and can be grown on desert and marginal lands without taking land out of cultivation for food production and without requiring expensive inputs like fertilizers and water. Additionally, biofuel production would have cascading societal and economic advantages because as much as 60 percent of Africa’s population makes a living from agriculture. Farmers who have seen their incomes steadily depreciate over the years following the slumping prices of agricultural commodities like coffee would find an appealing alternative in energy crops; with the refining process occurring domestically, a biofuel industry could create a high-value energy product for export.
With renewable energy markets growing annually by tens of billions of dollars, it’s not surprisingly that African governments are anxious to capitalize on these opportunities. South Africa, for example, has been a leader in attracting investment in renewable energy, having recently unveiled an aggressive $800 million plan to launch a domestic biofuels industry.
But advances in clean energy go beyond the southern economic powerhouse. The president of Senegal, Abdoulaye Wade, has been one of the more proactive leaders on this front, and he’s found a role model in ethanol-giant Brazil. A June agreement between the two countries has the grand aspiration of spreading a Brazilian biofuels revolution to Africa through a series of technical and education exchanges.
The Senegalese president has also pioneered a so-called green OPEC, which convenes a group of 13 non-petroleum producing African nations with a mission to create jobs and enhance political and economic security by diversifying away from oil into clean energy. According to the United Nations, these countries collectively have hundreds of millions of hectares of arable land currently not being used that could be put into production for ethanol and biodiesel. Zambia, for its part, recently put hundreds of thousands of hectares under cultivation for biodiesel.
There are discrete rumblings of clean energy developments such as these across the continent, but more is needed and the need is urgent. Without due international focus and financing to back it up, transitioning into clean energy future will still be a pipe dream for Africa long after it’s become a reality for the rest of the world. Particularly now, as African governments struggle to expand their energy infrastructures and build up the foundations for business and industrial manufacturing, we are presented with a critical window of opportunity.
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